Ilona Bērziņa
The establishment of a parliamentary investigative commission on the reasons behind the price increases in the capital’s district heating and the energy security risks in Riga gives hope that every heating season will no longer be an insurmountable fear for residents. It is also a question of environmental pollution, heat-energy procurement, political influence, and other essential issues. On whether the “heat devil” in Riga is really as black as painted, BNN speaks with the initiator of the commission, opposition MP Andris Kulbergs (AS).
How is it that Riga has the most expensive heat? Is anyone actually controlling these tariff increases and checking whether they’re justified?
This is a problem that has been growing for years and let run in an uncontrolled direction. Heat energy makes up 53% of Latvia’s overall energy portfolio, while electricity accounts for only 14%. We’ve filled the public sphere and documents with electricity issues, strategies and so on, but for heat there are very few such documents—practically none. If we look at the energy strategy at the Ministry of Climate and Energy (KEM), we’ll find just one small chart about heat.
Historically, Riga has always had a lower heat tariff than Tallinn and Vilnius—by as much as 32%. Why? Because we had a unique solution that neither Vilnius nor Tallinn has, and still don’t. We have combined heat and power plants (CHPs) that produce electricity for the whole country, and even for the Baltics. These Latvenergo CHPs are located near the city, which is rare, and in the process of generating electricity, heat inevitably arises—whether we like to admit it or not. According to Latvenergo’s own published data, that’s 180,000 MWh per year, which Rīgas Siltums could use and take. In reality even more heat is produced; we just can’t take it all—for example in summer when demand is low.
For years, especially in crisis years, we have blown—and continue to blow—this produced heat into the air. From an ecological standpoint, simply venting this CHP heat into the air is highly unstatesmanlike, unhealthy and harmful to nature.
So 180,000 MWh of heat is vented into the air—along with CO₂ emissions, for which we pay allowances. We want to reduce CO₂ emissions in the country, avoid paying for allowances, meet the climate targets for 2040… Europe itself says we must primarily capture this by-product heat; yet we’ve put wood-chip boiler houses in its place, which produce three times more CO₂ and release all sorts of elements from the periodic table while producing only heat—heat that essentially is already produced in the electricity generation process—while also emitting particulates into the atmosphere.
About €30 million worth of heat is vented into the air each year; the windfall profit on the heat Latvenergo supplies to the city is another €30 million. The price could be lower if everything were done correctly by the Public Utilities Commission (hereinafter the Regulator), but private wood-chip boiler houses in Riga have snuck in under this inflated ceiling and rake in another €30 million in windfall profit annually. Rīgas Siltums itself, through inefficiency and mismanagement, squanders €20 million more.
Year after year the figures vary a bit, but in total Riga residents overpay about €110 million every year. We’re looking for ways to cut VAT on five basic foodstuffs and where to find €15 million for that—while here Riga residents overpay €110 million! Even casinos and gambling aren’t as profitable or as predictable and safe a business as wood-chip heat sources on Riga’s right bank.
As a result, we’ve ended up with the most expensive heat tariff among the Baltic capitals. Our district-heating network is unforgivably old and unreconstructed—the average age is 28.4 years, and some pipes are 50, 60, even 80 years old.
Residents have often fumed about the not-so-great condition of the heat mains—lawns turning green in winter over pipes that leak heat, and residents pay the bill…
Yes. But the “green lawn” is just the cherry on top; old pipes also carry a high risk of failure. For example, Tallinn’s network is a third shorter, yet they replace 27 km of pipe a year. We replace 6 km in recent years. To keep our network’s average age under 30 years, we need to replace 28–29 km annually. Therefore, we can conclude that with the highest heat tariff in the Baltics, we still manage to age our network—and that too pushes tariffs up. And despite the very expensive tariffs collected from Riga residents, there’s not even sufficient investment into the heat network that needs renewal. That indicates mismanagement in all directions.
This isn’t just a Riga issue; it’s an energy-security issue because it also diminishes the role of our CHPs. If we could plan to sell both electricity and heat simultaneously, we would have cheaper electricity and cheaper heat that Latvenergo could produce. But right now, by venting heat into the air, we pollute the environment, rob Riga residents, and waste wood chips, which would be useful in Latvian towns and small cities to lower fuel costs and reduce heat prices elsewhere. That’s contrary to any green and economic thinking.
If incorrect—even harmful—decisions were made previously, what prevents fixing them now?
Rīgas Siltums’ ownership structure is completely messed up because there is no single owner—49% belongs to the Riga City Council, another 49% to the Ministry of Economics, and 2% to a private owner. In practice there’s no owner with a decisive role. Secondly, the Regulator has done a sloppy job approving tariffs. Latvenergo’s CHP tariff is set as if it were an ordinary boiler house and is inappropriately high already at the cost-price level. This way, the company earns excessively, and they’re happy because the government has mandated by law that Latvenergo must earn at least €183 million this year. That figure is because the dividend payout for 2024 was set at 70% of profit, but no less than €183.9 million. Next year it’s 80%.
If I’m not mistaken, Latvenergo’s profit last year was €273.7 million—arithmetically, that’s about €760,000 a day, including holidays and weekends…
Yes, and the company’s profit has been €350 million a year as well. Guess where that money comes from? We all pay it—and don’t receive the promised return.
Let me note that Latvenergo also received the Mandatory Procurement Component (OIK). All Latvian households paid €850 million into the modernization of Latvenergo’s CHPs so they could produce cheap electricity and cheap heat. We were supposed to get these benefits back—paid for, essentially a credit from society—but that’s not happening because the CHPs rarely operate in cogeneration mode, as intended after receiving the support. They do so only occasionally, which undermines the very essence of the support and the reason hundreds of millions were invested.
We disconnected from the BRELL power ring this February, which means the CHPs have an even more serious electric-security role in Latvia and the Baltics—balancing the market. That means the CHPs will run more often as spinning reserve all the time, including summers, to keep the grid balanced. So heat will again automatically be produced—which should be captured as a priority, low-cost by-product. The state has delegated to municipalities the function of providing society with a cheap and quality product—heat.
This function was assigned to Rīgas Siltums, which has not carried it out. In the long run, I see obvious beneficiaries here—wood-chip suppliers, investors in chip boiler houses, and the chip plants themselves. Imagine: one such boiler house with nine employees has €27 million in annual turnover and €7 million profit! A unique investment paying back in two to three years, although globally such investments are measured in 8 to 15 years. Someone is swimming in money—and that someone is not Rīgas Siltums.
Despite the high tariff, Rīgas Siltums’ finances are dire. Most interestingly, among these five private traders, the dominant capacity belongs to Rīgas Siltums’ own subsidiary! So Rīgas Siltums, through its “daughter,” sells expensive heat to itself, and that is unregulated…
To put it bluntly—why isn’t anyone sitting behind bars over these deals with the subsidiary?
Precisely because Rīgas Siltums has a complicated ownership structure. There are problems with the Regulator, too, and the Competition Council has taken a unique decision that essentially contradicts its own raison d’être. Competition should lead to better service and lower price, but at present the Competition Council has done everything to restrict competition. There’s a mutual arrangement where all five players offer the maximum possible price. This is a twisted situation that can’t be fixed by Riga City Council or the Ministry of Economics alone. It requires many ministries working together. For example, the Ministry of Climate and Energy, which should have championed a heat strategy and solutions, has no position and remains silent. This is a very complex topic, which is why it is being manipulated and the public misled. With various buzzwords and energy jargon people’s eyes are being glazed over as to why the tariff is so high. But I have one question—why is this tariff the most expensive in the Baltics, and why can Vilnius and Tallinn manage with much lower tariffs and better service?
This story will end badly, because when people see that district heating costs more than their individual solution, they will start investing in those instead of staying with Rīgas Siltums. The company’s finances are so poor that it has to draw dividends from its own subsidiary to patch budget holes. Without that, Rīgas Siltums would post a very negative financial result. Due to its own mismanagement, the company is forced to uphold the high tariff and high profits of these small heat producers—because it is itself a beneficiary in one of them.
Do politicians actually have any real way to rein in Rīgas Siltums’ appetite? Because regardless of what the company thinks, Riga residents don’t grow money in flowerpots—heating season drives many into debt and despair. That’s the reality.
Exactly—and perhaps not “appetite,” but mismanagement and poor-quality planning and work. People get their first shock with the October bill, when the first price increase hits (this year it’s somewhat softened by warm weather and lower early-season consumption). I know many people who cannot pay this increase, which, moreover—due to such mismanagement—doesn’t even cover costs. One example: in Estonia there is Tallinna Küte; Rīgas Siltums has 600 employees, while the analogous Tallinn company has 300.
In Latvia, the Regulator together with the Competition Council employs about 191 people. In Estonia, the combined Regulator and Competition Council has 59. See the difference? They handle all these issues and neither the Estonian Regulator nor the Competition Council has five board members apiece. They have a single executive director over both. We have leaders in each, plus five board members in each, and in the Regulator a Consultative Council of twelve more.
So whom should we hold accountable, if everything dissolves in collective irresponsibility and there are no culprits?
We’ve set up a parliamentary investigative commission in the Saeima to examine the price increases in Riga’s district heating. We will bring these deformities to light and point to clear solutions—already available next door in Copenhagen, Vilnius, Tallinn.
It’s simply a matter of changing the regulatory framework; it’s not a question of money—it’s a question of will.
We must return to synergy between Latvenergo and Rīgas Siltums, where we maximize the use of cheaper heat resources, minimize the cost of electricity, and don’t vent heat into the air—we use it! At present, some of that is prevented by Competition Council decisions, the Regulator’s methodologically wrong tariff setting (no method for CHPs that, when setting the heat tariff, also accounts for electricity-market revenues—power sales, frequency services, balancing and reserve services), and also Latvenergo’s own reluctance.
I’ve been saying this since 2023. Things are happening slowly, reluctantly, and palliatively, but no one is addressing the root. If I were running the process, within a year I could reduce the tariff to €60/MWh instead of the current €83, and in the long term—three to five years—reduce it further.
What you say is very logical, and Riga residents would welcome lighter bills. Why don’t the ruling circles want to listen? Are there “underwater rocks” the public doesn’t know about?
I think there are very significant interests that were pushed through long ago. The Competition Council’s decision is supreme here; it’s hard to overturn and it works in one player’s interest. Rīgas Siltums is poorly governed, where private interests can prevail, and there is no single decisive owner who can say: we do it this way!
Remember how the state subsidized heat during the pandemic when prices rose above €180/MWh? Comparing costs in Riga and Vilnius, we overpaid €300 million then. Instead of fixing the system and capturing the heat we already produce, state subsidies went into the pockets of these well-fed players. We ourselves allowed it with tariffs so high.
A telling example is Rīgas Siltums’ Imanta CHP, which was costly to build.
€60 million of its construction came from OIK, and €25 million was invested by Rīgas Siltums itself. The Imanta CHP used to be the third largest in the country and primarily produced electricity—about 200–300 thousand MWh per year. Their electricity revenue was €13 million annually, and heat as a by-product was fed into Pārdaugava heat networks. Now the Rolls-Royce gas-turbine CHP unit has been broken and idle for four years, and heat is produced in simple Soviet-era gas boilers from the 1970s, inefficiently burning gas.
Again a question of names and surnames—someone decided not to repair that unit…
An investment project was brought to the board, which it did not dare to approve. It was about €3.5 million, which, given the peak electricity prices during the crisis, would have paid back in two to three months.
Is there any way to hold boards and supervisory council members liable for losses caused? In the case of the Imanta CHP’s unapproved investment, those losses should be calculable, right?
I expect that as a result of the parliamentary investigation we will uncover a lot. There’s a great deal of material and suspicion—many things have been breached: conflicts of interest, ethical and reputational issues, and mismanagement.
You once said that Latvenergo’s profit is like an electricity tax…
Yes—the state has made it a tax taken from one player, but everyone else suffers. In my view, it would be better for the state to find ways to produce cheap electricity, so that many manufacturers and exporters could earn. That would bring much larger dividends to the state through taxes than Latvenergo, whose tariffs destroy export capacity. Electricity is an input for many products.
One argument by the “Tiesiskums.lv” bar association for reclaiming OIK losses is that the OIK charge made many Latvian companies uncompetitive; some even went bankrupt. Do you think this initiative to recover OIK will have any consequences?
In practice it was a loan from society—money borrowed to have a better and cheaper service in the future. Where is it? If society puts up the money—quite a lot—what has it received in return?
Is cutting bureaucracy and reviewing spending actually happening, or is it just a smokescreen? If we cleared out all those many decision-makers from boards and councils, might decisions become more transparent, constructive and economical?
I see all these state-owned company boards and councils as a scourge in which responsibility basically dissolves and professionals are not brought in—granted, I’m slightly vulgarizing; it’s not like that everywhere. But essentially it’s a rotating club that doesn’t admit outsiders or private-sector people. It’s become highly politicized, with connections pointing to various interests.
You don’t even need bribes to push interests; the remuneration for a few hours’ work per week or month is enough for people to feel comfortable. I don’t mean any specific state or municipal company; I’m deliberately hyperbolizing.
In a way, it’s modern theft, it’s a modern way to legally get your hands on something and influence things.
Does that mean the only hope for positive change is the next elections?
Not only. Society must put pressure on these issues. This is not just about Riga but about national development—what our basic services will be: electricity and heat. If businesses flee Riga or, for example, the Lidl chain abandons district heating because it’s cheaper to install its own heat pump, then something is wrong. Nothing should be cheaper than district heating if it is properly managed.
Read also: Head of “Rīgas Siltums” dismissed – board blames inaction during tariff hike